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They have to operate within the laws of the countries they’re physically located in. Those countries want to know that they’re not hosting illegal content, providing services to crime rings, Russia or North Korea, etc.

If Hetzner allows you to host something and you use it for illegal acts, they aren’t going to jail to shield you for €10/month.

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Hosting companies managed to shutdown illegal sites without requiring you to submit your pics and passport first.

And if someone wants to do illegal things, what's stopping them from submitting a fake ID?

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You buy your fake ids at the grocery store?
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No, but my local AKO newsagent does have them. Don't have a need for them though.
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In my case, I submitted my drivers license, the real one, that matched other information I submitted.

They still decided my information was fake and terminated my account.

I'm never going to do business with them again.

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Hetzner is like 1/10th the cost of ripoffs like AWS now, the passport data is deleted after verification and I can actually trust this claim coming from an EU company under GDPR that doesn't have any use for my personal data. You can also just bypass the passport requirement entirely by making a €20 Paypal deposit to the account.
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You just hear too many horror stories of data being leaked. Even if Hetzner uses a 3rd party system to do the verification - that 3rd party probably has to store your pics for some time.

But at least if there is an alternative then great.

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Never had to do this. Sounds like they were flagged as a high risk customer and that’s why.
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